NEW YORK, Oct 4 (Reuters) - Ultra short-term Treasury bill yields hovered near 10-month highs on Friday as investors enter the weekend with growing concerns about the possibility of a U.S. government default.

As the first partial federal government shutdown in 17 years hit a fourth day, traders continued to await hints the White House and Congress might be coming closer to an agreement to increase the government’s $16.7 trillion statutory borrowing limit before an Oct. 17 deadline.

Democrats and Republicans remained far apart in ending the government shutdown on Friday, let alone reaching a deal on the debt ceiling.

Jitters about delayed payments on short-term government debt, or a technical default, spread to more T-bill issues. Interest rates on bills that mature in the first half of November last traded at 0.1 percent, 4 basis points higher than late Thursday and up 8 basis points from a week earlier.

“The fact that November T-bills are feeling a little bit of pressure suggests the market is becoming a little more concerned,” said Byron Carson, fixed income portfolio manager and rates strategist at Principal Global Investors in Des Moines, Iowa. “The longer this lags out there, the longer investors will be looking to roll one- and two-month bills.”

On Oct. 17, $85 billion of Treasury bills will mature. The interest rate on that T-bill issue last traded at 0.12 percent, up 1 basis point from late on Thursday and up 8 basis points on the week.

With little progress in Washington on a deal to raise the borrowing cap, the cost to insure against a U.S. default in the derivatives market nearly doubled this week, approaching the level last seen in July 2011 during the first debt ceiling fight between President Barack Obama and Republican lawmakers.

Investors would pay about 53,760 euros to insure 10 million euros worth of Treasuries for a year on Friday, according to Markit. A week ago, the cost on one-year U.S. sovereign credit default swaps was nearly 29,000 euros.

The price on one-year CDS on Treasuries stood 15 basis points above the five-year price, the widest gap since July 2011, highlighting concern about near-term risk.

While the ongoing government shutdown and the looming debt ceiling deadline have roiled the T-bill sector, longer-dated government securities have held in a tight range, suggesting traders are clinging to hopes for a deal to avoid a default.

Benchmark 10-year Treasury notes fell 13/32 in price with a yield of 2.650 percent, up 4 basis points from late on Thursday.

For the week, the 10-year yield bounced in a narrow 9 basis point range, from an intraday low of 2.58 percent to a high of 2.67 percent, according to Reuters data.

The Treasury Department will sell a combined $64 billion in coupon supply and at least $65 billion in bills next week. Unless a debt limit deal emerges soon, the prospect for later Treasury supply is murky, analysts said.

Next week’s 10-year and 30-year note auctions likely will not be much affected by the political bickering, Carson said, while the 3-year might be affected by one or two basis points if the rhetoric heats up.

“People want a decent concession going into next week’s auctions,” said Jason Rogan, managing director of Treasuries trading at Guggenheim Partners in New York.